City of Heroes / Villains: Putting Claims To The Test

Early in January (which I missed, because I was doing other things) MMORPG.com revealed that NCsoft and Paragon Studio employees had contacted them to help correct a misconception: that City of Heroes / Villains (CoH/V) wasn’t profitable. This information was provided on the guarantee of anonymity. MMORPG.com managed to get NCsoft’s Director of Corporate Communications, Lincoln Davis, to comment on the anonymous tips. Massively.com have taken that article and run with in in a generally pro-CoH/V and anti-NCsoft way, but what I haven’t really seen is anyone try to verify the claims made. Obviously not all of them can be, but enough other information exists that some of them can be held up and evaluated.

(UPDATE 18 Sep 2013: I’ve created an addendum of sorts that looks at how NCsoft told Paragon Studios that CoH/V was going to be shut down months ahead of the actual closure. Read it for a little bit more context around some of the claims.)

The Verifiable Claims

Going through the list (and changing the order to build a clearer picture):

Claim: Paragon Studios grossed 12 million in revenue annually.

Going through NCsoft’s Earnings Reports, the statement that Paragon Studios “grossed 12 million in revenue annually” is a bit open to questioning, at least over which period you are looking at. If you do a quick sum of the revenue-by-year for CoH/V you end up with something like this using a Jan – Dec reporting period as NCsoft does (results converted to US$, with some assumptions used in the conversion):

CoH/V's annual revenue using a Jan - Dec reporting period. It slopes down.

This is based on NCsoft’s Earnings report information that everyone seemed happy enough to rely on until CoH/V was shut down. (Click to enlarge)

Arguably there’s a bit of a gap in the idea that CoH/V – the only revenue source that Paragon Studios had that I’m aware of – grossed US$12m annually. At best it could be seen as a rough average over the last two years.

If you tweak it to a Jul – Jun accounting cycle, the figures look a bit different. CoH/V’s launch quarter is ignored and we end up with the following annual revenues:

The same figures as the above chart, but on a Jun - Jul reporting period. They also slope down and clearly show 2009/10 as a very hard year for CoH/V's revenue.

The same figures as above, but on a different reporting schedule (click to enlarge).

So perhaps if you allow for some errors in conversion and maybe some rounding from the source, the concept of CoH/V earning US$12m a year in revenue is viable for 2010-ish onwards. Looking at those same figures you can really see that the revenue numbers take a dive around 2009/10. (Champions Online launched September 2009 – I’m not saying that the decline was entirely due to that, but it’s an interesting coincidence at least.)

Sidenote: those two images above are some very strong support for why CoH/V was shut down. That kind of revenue decline is a pretty brutal trend.

Claim: CoH had a high retention rate. Subscribers had a stick rate of 95-98%.

Obviously I can’t verify this by producing Paragon Studios’ internal data, but it is consistent with previous comments from former CoH lead Jack Emmert that this title had “a 90% retention rate from month to month“. But the key word for this claim is “subscriber”.

A tube of super glue.

Subscribers stuck to CoH/V something like the above. The problem appears to be the lack of new players who came along to also get stuck.

CoH/V was a F2P title. Subscribers – paying an automatic $15 or so a month – the most dedicated of players to any F2P title, because they could elect to pay less money and still keep playing. It would also be nice to know the time period for this indicated stick rate – per month? per week? (I believe such figures are usually reported on a monthly basis, but that doesn’t mean the claimed figure was). Regardless, it’s a strong result for CoH/V.

But even with such strong retention figures, you can’t forget the other side: new player attraction / acquisition. Let’s say that CoH/V started the year with a monthly stick rate among subscribers of 98% and 100k subscribers. If no new players came on board over that year but 2% churned monthly, at the end of that 12 months they would now have 78.4k players, or have lost roughly 22% of that ‘sticky’ subscriber base. You need new players to replace exiting subscribers to ultimately see a title grow.

Looking at those above revenue figures and accepting the potential for CoH/V subscribers to be incredibly loyal, it’s pretty clear that CoH/V’s problem was in attracting new players. This was despite a sizable marketing push around Going Rogue and then when CoH/V went F2P. It seems that CoH/V was a title where the subscriber base was rusted on but new players weren’t coming on board in large numbers.

Claim: NCSoft has no plans for a CoH 2.  Paragon wanted to do it but NCSoft was growing ever more uncomfortable with a Superhero IP, worried that it wouldn’t work in today’s market.

NCsoft canning plans for CoH 2.0 is consistent with information I’ve seen from other sources. The perception that both Champions Online and DC Universe Online bombed wouldn’t have helped change their minds either.

Claim: They (Paragon) had a second project in the works. It was a compromise to not being able to make CoH 2.  It was the show “Lost” meets Minecraft.  You crash-landed on an island and you were able to build your own fortress and weapons. You teamed up with other players to tackle the mysteries of the island.

I’ve heard this claim before and it is mentioned in a previous link.

The Unbelievable Claims

Claim: The studio’s total annual operating cost was $4 million USD. 

Paragon Studios had a total annual operating cost of US$4m? That’s… low. Incredibly low. Even the article points out that with Paragon Studio’s 80-odd people, they’d be paying an average of US$50k per year to each employee (a very low figure with the average salary in the gaming industry reported at around US$80k per year) for an overall payroll of US$4m, and that’s before rent, taxes and other business expenses.

I had a look at rent. Here’s where I believe Paragon Studios was located (2189 Leghorn St., Mountain View, California) and I believe it took up the whole building, so that’s 13650 square feet (SF) to pay for. Rental rates in the area look very low – ranging from around US$15 / SF per year to US$65 / SF per year at a glance – and if we take an intermediate figure like US$30 / SF per year for Paragon Studios, that still means around US$400k was going out in rent annually and the rest of the studio only cost US$3.6m to run.

It's the Google logo.

Do you know who else is in Mountain View? If you are living in this area, you are generally pulling in quite a bit more income than the national average.

Also, just taking into account studio operation costs may not reflect the full story of CoH/V’s costs. NCsoft provided services such as customer service, payment systems and server hosting to CoH/V, with it being highly likely that Paragon Studios was required to pay some kind of contribution towards those areas. Any cash going towards those overheads would also increase the studio’s operating costs, but they may not have been included in any kind of “studio operating cost” figure.

I could certainly accept that the operation cost of CoH/V was US$4m, particularly with rent costs being low, but saying that Paragon Studios’ total operating costs were US$4m seems to be leaving some numbers out somewhere.

Claim: CoH was profitable even before they converted to Free to Play but were even more so after the conversion.

Here’s the problem with taking the word ‘profitable’ at face value: you can’t always be sure what kind of profit is being talked about. Gross profit? Net profit? A profitability ratio? Profitability per player? And over what time period?

I have a lot of problem accepting that CoH/V was more profitable after going F2P considering its revenue continued to shrink following the conversion. Unless Paragon Studios and / or NCsoft was slashing costs internally, there is no way that you could have gross profit going up while revenue went down. Increased profit on other measures would be possible – perhaps on some kind of average profit per paying player basis, or something – but not at the net profit level that really counts.

As I’ve said previously, it’s possible that CoH/V was profitable but Paragon Studios wasn’t. Perhaps CoH/V’s profitability went up because a lot of costs were being deferred to the other project. This claim really requires a lot more challenge and clarification before is should be accepted.

The Unverifiable Claims

Claim: Brian Clayton tried to orchestrate a management buyout of Paragon starting over a year ago because it became progressively more difficult to deal with NCSoft. They had created a Kickstarter page and a campaign video, but it never went to press.

The claim that Paragon Studios was attempting a management buy-out isn’t currently verifiable using existing sources. However, if it is true, it’s a claim that could provide a reason for why Paragon Studios was shut down with such surprising speed.

The Kickstarter information is curious, given that Paragon Studios was 100%-owned by NCsoft and would need NCsoft’s permission to launch it. How would that conversation go? “Hi, we want your permission to help us leave you, and we’re going to be very public about it. That okay with you?” Plus how much could Paragon Studios realistically look to raise from that channel? Even in the absolutely best case scenario, it would less than US$4m.

An unhappy couple.

“We’re going to break up, but I’m going to spend the next month telling everyone and seeing how much money they’ll give to help me move out. If it’s not enough cash, I’ll stay with you. Sound fair?”

There had to be other investors behind the scenes and probably the kind of people / organisations for whom an extra few million on a deal wouldn’t be a problem. It’s likely that any Kickstarter would have been more to show that CoH/V was popular enough to hit a financial target via crowdsourcing than vitally needing the money to fund the buy-out. Especially if prior to starting the process Paragon Studios were aware of how much they’d have to raise to buy out NCsoft’s share – the full amount would have had to be in the tens of millions.

I’ve had a look on Kickstarter to see if I could find a Paragon Studios-related account name, but was unable to locate any – the Kickstarter site is great for searching about projects but lousy for searching about user accounts.

When Cryptic sold the CoH/V IP to NCsoft and a number of Cryptic developers left to start NCsoft NorCal (which later became Paragon Studios), they did so under a structure that was fully owned by NCsoft. That Paragon Studios was allegedly looking to break away from this structure is unlikely to have been viewed positively by NCsoft management regardless of CoH/V’s financial performance.

Subsidiary break-aways are exercises that test the trust each party has in the relationship. Information that used to be openly shared is now cut back and each side looks to guard their territory, especially where current revenue generators would become competition for future revenue. Even in situations where the break-up is mutual, at least one side ends up looking bad to the public (and usually it’s the side with the most money / power in the previous deal) – if the relationship was working, then no-one would want to change it, right?

A picture of a dog collar.

Loyalty is a difficult leash to get out of gracefully.

If NCsoft management were aware of the plan, it would be very easy for the internal view on any Paragon Studios management buy-out to be one focused on perceived disloyalty. Hadn’t NCsoft invested a lot in CoH/V, including a boxed expansion and F2P conversion, only to fail to see a return to growth? Hadn’t they kept expanding the Paragon Studios team despite CoH/V failing to meet its annual revenue targets?

But Paragon Studios management still wants to take all of that and walk away, taking the benefits of that relationship with them? It would be possibly insulting to NCsoft. And it would serve as a problematic example for other NCsoft-owned studios. Maybe ArenaNet or Carbine Studios would start to look at independence with a longing gleam in their collective eye. That’s not a situation NCsoft would want to encourage.

If NCsoft was thinking like this, it would have made Paragon Studios a very ripe target for cutbacks at a time of financial hardship – why spread the pain when a single studio that already wants out is underperforming? Some may view that as spiteful, but if you have to cut your costs, you start with the easiest targets. And you do it quickly, because that way no-one has time to take valuable materials with them.

Claim: NCSoft paid $8 million USD to buy CoH. They wanted $80 million USD to sell it. They only value it at $3 million for tax purposes.

NCsoft made the deal to buy CoH/V from Cryptic at the end of 2007. I don’t believe it has ever been publicly indicated the amount paid for Cryptic’s share of the IP. Although US$8m (if true) might seem a bit low for a title that earned about three times that amount in the same year, it’s important to remember that Cryptic were only in charge of management and development of the game, plus owned part of the IP, with NCsoft funding other aspects of the game and owning the other part of the IP. Internet rumours were that Cryptic and NCsoft owned the CoH/V IP 50/50 until the buy out. So in buying CoH/V NCsoft was spending money on something they already part owned.

However, without other sources, the US$8 million claim is unverifiable.

A wartime poster that says, "No room for rumors".

In the absence of other information, there is PLENTY of room for rumours.

NCsoft wanting to sell CoH/V for US$80m is another curious claim, because it matches up with a claim that Trion was willing to spend US$80m to acquire CoH/V. But that’s a not entirely reliable rumour based on a single post in a video game forum from someone who may have been making a general claim (“Trion had US$80m available to spend on project acquisition”) that’s been taken as a specific one (“Trion had US$80 that they were willing to 100% use to buy CoH/V”). Other rumours about parties interested in buying CoH/V included Sony Online Entertainment (which was then refuted by SOE’s MMO head) and Valve (who allegedly was only offering US$3m plus profit share to NCsoft to buy the IP).

So maybe Trion’s story is true and NCsoft was just looking for a price they’d been offered by a recent potential buyer, but the biggest issue is that a lot of the comments on CoH/V’s price come from discussions on message boards. These comments then took on a life of their own as people looked for any information about what was going on with CoH/V and rumour started to be treated as fact.

Was the MMORPG.com source in the room when NCsoft indicated they wanted US$80m, or did they also hear about that figure from another source? And importantly: when did they hear that figure? A few years ago, US$80m for CoH/V as it earned US$20m+ a year would have been believable; in 2012 when the title was earning half that revenue that same price may not have applied.

Finally, regarding NCsoft only valuing CoH/V for tax purposes at US$3m, there are a number of questions: what part of CoH/V was valued at that figure? All of it, including its operations? Or just the IP? That aside, it remains an unverifiable claim – I can’t see any information that breaks things down to the per title level. If you can find those things in the Earnings Reports or Audit Reports, let me know and I’ll revisit this.

Claim: NCSoft tried to work with Paragon, they really did.  But the profits were not what they needed to be, and CoH/Paragon were the weak link in NCsoft’s lineup moving forward.

Other people within Paragon Studios may feel differently about how well NCsoft worked with Paragon Studios, so it’s a bit too subjective to be verifiable.

NCsoft has a history of completely supporting a title right up to the point it doesn’t. I’ve seen this used (and have used it myself) as a criticism of NCsoft, but there is also virtue to it: NCsoft generally doesn’t cut a game off and let it slowly die. If a game is NCsoft’s they work to try to make it successful, exhausting a number of options before possibly pulling the plug. It’s actually saying something nice about NCsoft in that they were trying to turn things around, but sometimes it doesn’t work and you just have to make a hard decision for the benefit of the rest of the business.

Profitability and revenue have already been discussed.

And Now, A Word From Our Publisher

A picture of a generic villain: black top hat, big mustache, undertaker clothes, the works.

The fact that this is how most gamers view publishers doesn’t help NCsoft’s case to be viewed in their favour.

No-one really trusts PR statements put out by big businesses. In this case NCsoft’s Communications Head Lincoln Davis put out a statement that a lot of people seemed to read their own pre-conceptions into.

At its heart, NCsoft’s statement was that the financial figures the anonymous source presented were incorrect, Paragon Studios and CoH/V weren’t meeting long-term profitability goals, and that it was a difficult decision to shut the studio and this title. It seems that a number of people wanted NCsoft to counter by releasing the ‘real’ figures, and that since they didn’t they must be lying, but all of the things can NCsoft said can be true. As I’ve pointed out above, a number of the financial claims around CoH/V from the anonymous source require a lot more information before they could be considered as true and correct.

Both sides here may be telling the truth as they know it.

Lies, Damned Lies and Misinterpreted Statements

Under these kind of he said / she said situations, external observers on games forums will tend to try to find out who ‘lied’. In real life it’s rarely as simple as having one (or both) sides telling the absolute truth or a pack of lies. There are plenty of ways that someone can tell what they believe to be the truth but it turns out to be not fully correct – perhaps they are correct within their own sphere of work but wrong about the organisation overall, or perhaps they misheard or misinterpreted a statement. It’s also very possible that a company’s employees are told one thing while management is aware of a much fuller, more detailed picture.

This is why anonymous sources can be troublesome – they can tell a journalist / video game writer something they (in the best case) believe to be the honest truth, but how much weight their comments have depends on their position within the organisation. MMORPG.com felt that the source was reliable enough to publish the comments, but as I’ve argued above there are a number of claims made that deserve further questioning to better tease out their accuracy.

The Red Herring of a Smoking Gun

A sign saying, "Never forgive, never forget".

Some people won’t forgive NCsoft for the closure of CoH/V, and that’s fine. But my point is that there are some possibly very sensible business reasons for the closure and not NCsoft being evil for the joy of it.

A lot of people seem to be looking for a smoking gun around the cancellation of CoH/V: that CoH/V in itself was profitable. As I’ve said before, I think that’s true – under certain conditions / assumptions, CoH/V probably was a profitable title. But at the same time, I don’t think Paragon Studios was a profitable studio with only CoH/V’s revenue coming in. There was at least one other title under development as well as two previously abandoned titles, meaning a lot of expenditure but no expectation of new revenue for at least a few years.

The challenge that some people seem to have is around why you’d shut down something if it was profitable, but it’s not that uncommon. If a title (or product or service, for that matter):

  • wasn’t profitable enough to meet its targets;
  • was profitable now but had a future expectation of going into a net loss situation;
  • was a less profitable investment than its alternatives; and / or
  • risked defecting to become the competition

then there is a solid business case for reallocating its operational dollars elsewhere.

Even if solid evidence emerged tomorrow that CoH/V was undeniably profitable, it doesn’t prove that NCsoft’s decision was objectively wrong or a poorly thought out. Subjectively a number of people disagree and think that CoH/V should have been left operating, but CoH/V’s revenue had been on the decline for quite a while with no signs of recovery. Something was going to give at some point; it just happened more suddenly than expected.

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22 thoughts on “City of Heroes / Villains: Putting Claims To The Test

  1. A part of the reason things went sour is not that it was shut down, but how. Suddenly and with no respect for the players. The game Glitch was shut down with such a respectful way. Where the players of CoH felt they were just tossed out the door.

    • Yes, I agree with that – NCsoft didn’t look good in suddenly locking out Paragon Studios staff just before a long weekend.

      If the Kickstarter / management buy-out rumour is true though, it could provide a part explanation for that – NCsoft would have been aware (or would have thought) that Paragon Studio may have been talking to outside parties about funding, so moved to lock down their assets when they decided the studio was to be closed.

      To my knowledge, this is the first time NCsoft has been so ‘rough’ in their treatment of a studio they are closing. Maybe it’s just the first time they’ve been reported as acting like this, maybe the people in charge of it were very clumsy, maybe I’ve missed the reports of what happened when Auto Assault of Dungeon Runners was closed.

      • At the risk of being accused of ethnic stereotyping, it is consistent with business practices in Korea for NCSoft to have hit the Paragon Studios staff out of the blue with pink slips on a Friday; it is regarded as preserving face for the employee being fired to have it happen quickly so that they don’t have to come back in to work again with the shame of failure attached to them. Without confirmation from NCSoft that this is in fact why the firing was done the way it was, it’s all theorization; however, this interpretation is consistent with the comments about NCSoft on glassdoor.com that the managment of NCSoft North America imposed Korean cultural expectations on the North American staff with little recognition or awareness of the difference between Korean and US culture.

      • I’ve seen that claim too, but can’t vouch for its cultural accuracy. Especially since Paragon Studios did come back to work later on. But as you say, that’s a hypothetical.

        It was also the Friday before a long weekend. It may have just been a convenient date.

  2. I didn’t think the claim for expenses of $4M/yr was for Paragon, but for CoH (30/80 people, some devs definitely still worked at PS but disappeared from the CoH boards, still posting very occasionally on non CoH topics with their rednames). My guess is that PS expenses were closer to the $12M that CoH brought in. There was also rumoured to be some dodgy accounting around the buying of store points that meant they weren’t credited to CoH but to NCSoft directly under some circumstances (possibly till they were spent), and that artificially deflated the revenues (I know I had the best part of $50 worth of unspent points at shutdown).

    • I’m just reporting the claim made in the MMORPG.com article attributed to their anonymous source. It did look wonky to me too.

      My understanding is that NCsoft has always handled the payment systems, so that they collected all the revenue and then paid it off to their studios. So it’s possible that Paragon Points aren’t treated as revenue for Paragon Studios until they are spent, and then they were some kind of internal fund transfer. There’s a degree of accounting sense to that. However, there’s been so much mud thrown at NCsoft in how they do business that it can be hard to work out what was actually going on and what is baseless accusation.

      Do you still have Paragon Points on your account? Can you get them refunded?

      • I still have the points, they’re lost, they refunded any bought just before the closure announcement, but mine were bought months before to get my newly created second account the privileges it needed.

  3. Whether CoH was profitable or not, the unanswered question is why NCSoft wouldn’t take $8-10M and unload it rather than simply closing it down. This is the question fuelling IMO most of the bitterness among the ex players. In other words “OK, you want no part in CoH, just hand it over for a reasonable fee to somebody who does”. The burying of the game strikes most of us as some sort of malice and is fuelling the internet bile.

    • I’ve always asked the question, “Who buys CoH/V?”. There are a limited number of other potential MMO buyers out there and the question assumes that NCsoft is willing to sell and can reach an agreement with the other party. As the rumours indicated, both Trion and Valve might have been options. Or they might have been just rumours. Richard Garriott also was mentioned as a potential buyer.

      To date NCsoft hasn’t appeared willing to sell any of their failed MMOs. Then there’s the ‘reasonable fee’ question – if CoH/V is drawing in US$12m a year, selling the game for US$8 – $10m means they are selling it for less than a year’s revenue. That would be a bargain for whoever picked it up at that price (and most MMO sales are fire sales that offer up the IP for relatively low amounts, so even interested MMO buyers would have been looking to lowball NCsoft anyway). The new owners may end up growing CoH/V and stealing players from other NCsoft titles, which would be a terrible result for NCsoft.

      It’s a much safer from a management perspective for NCsoft to shutter their old games. At the very least they aren’t handing a number of players directly to a competitor. And it doesn’t matter that much if a number of CoH/V players say they’ll never play an NCsoft title ever again if the next title they launch picks up more than they lost (and on that ground, Guild Wars 2 did start out strong).

  4. A key thing to be considered here is. Very few MMOs get completely shut down the way CoH was, the norm when a game becomes unprofitable is to slash all non essential expenses. Running the game on a skeleton frame for little cost to the company. This shows good faith to the players. That the time and money they invest into a MMO from them will never be completely lost.
    NCSoft has made moves like this before. So I choose to never spend my time and money on their games because there’s a better chance I’ll lose my investment with their MMOs than with other MMOs. One thing I’m extremely bitter about is I bought $100 worth of Paragon points 3 days before the (out of nowhere) shutdown announcement. I did this because they were advertising many new things we could soon get with our points. Including Super pack 2. But I never got the chance to buy what they advertised. I wasn’t eligible for a refund because they only refunded Points bought AFTER they announced the shutdown. Which no one bought, So that was another sleezy move. Having the appearance of refunding people without actually giving back much. This is why I think it’s no large stretch to call it unethical. It’s unethical to promise someone something, then not deliver it after getting their money for it.

    • In the alternate universe where CoH/V players find out that NCsoft has slashed Paragon Studios back to a skeleton crew I would predict that it wouldn’t have been taken as an act of good faith. Games that go into maintenance mode typically enter a death spiral they can’t leave while the player base exits.

      But yes, that’s often typical of how MMOs are treated. So you end up with cases like the Matrix Online, which had something like 1 developer working on it. NCsoft has generally elected not to walk down that path – they support a MMO until it’s apparent it won’t recover, then they cut it off.

  5. “it’s pretty clear that CoH/V’s problem was in attracting new players. This was despite a sizable marketing push around Going Rogue and then when CoH/V went F2P.”
    Where was this marketing push? I, personally, never saw it. Does anyone know where they did their marketing/advertising? Was it only in game stores, because the game was very friendly to casual players, so they probably could’ve gotten more players that way.

    • A lot of MMO sites had Going Rogue articles (there were a number of videos shown) and ads when that launched, while Freedom also got some attention as well. Massively.com had a column completely devoted to the game – not something that all MMOs get. The advertising it got was aimed at MMO players generally.

      No, CoH/V didn’t get TV ads, but not that many MMOs do.

      Plus if CoH/V was as attractive as a lot of people say it was, the word of mouth attraction to CoH/V should have been huge. It was a game where apparently less than 10% of subscribers churned. Once a new player gave CoH/V a shot or an exited player returned, surely there should have been a decent acquisition rate. But as I’ve indicated elsewhere I think at least part of CoH/V’s problem in this area was that trial accounts were too limited, that while the restrictions made sense from an anti-gold spammer point of view, it didn’t make the trial particularly fun to play.

      • Nope, can’t be convinced that NCSoft didn’t utterly fail CoH as a publisher. it’s not up to us to provide word of mouth, it’s their job to properly advertise and while they did some, they certainly didn’t do enough out of sheer incompetence. The french language server should have been taken advantage of and they should have advertised in Quebec, the french love gaming. I did my part to spread the word but I don’t have an advertising budget. ArenaNet knew they couldn’t leave it to NCSoft and went outside the company for their marketing of Guild Wars 2.

  6. One has to ask if the Studio was not making a profit but the Game was. Why not drop the two projects in the works fire Half or even two thirds of the staff, that would cut Studio cost but still keep the game running.

    Even cutting the production of future Coh items and running the game on maintenance mode would still bring in business.

    Of course CoH players biggest argument is. How can you expect Profit from something not advertised! Right now is prime time for Superheroes with the Avengers Movie, The other Marvel titles, New Superman, and other superhero movies and shows. Why didn’t they advertise the first and biggest Superhero more? It’s like having a gold mine, but not wanting to dig.

    • I believe that NCsoft wants to see growth in its projects in return for its investments and CoH/V wasn’t showing that growth. It had fallen from being (at best) 18% of NCsoft’s worldwide revenue down to something like 2 – 3% and every recent quarter (outside of the Freedom launch) was worse than the one that came before it.

      If NCsoft cut half the studio and cancelled the other project it wouldn’t lead to future growth, only string out the decline. If you start to cut production of microtrans actions in F2P titles you only end up making your revenue stream worse as well. There’s a big difference between “still being in business” and “being successful in business”. NCsoft wanted the latter.

      A few years ago the same arguments were made for the X-Men films, “Superman Returns” and the Spider-Man films. I suspect that neither Disney nor WB would be cutting ad deals with NCsoft to promote CoH/V. Plus national TV / cinema ad campaigns are expensive and certainly not guaranteed return on a title that hadn’t seen notable revenue growth since 2007-ish.

  7. There’s one other matter omitted from this analysis: What of reports of some kind of $6 million loss on NCSoft Korea’s part and and through accounting trickery spread out onto Paragon Studios or more simply Paragon Studios was cut to keep investors from bolting from NCSoft overall?

    Plus it seemed awfully odd that in UNDER A WEEK after launching a new Nature powerset in the cash shop, NCSoft announced it was dropping City of Heroes, closing the shop, stopping all financial transactions. Why was that powerset allowed to launch if they were closing the game down a week later? That’s far more damaging about NCSoft management and I’ve yet to hear a good explanation for that.

    • That wasn’t part of the anonymous source’s claims.

      I believe that you may be talking about the quarter NCsoft overall made a loss (which I mention here). I don’t believe this quarter’s loss was passed onto CoH/V, but it would have spurred on a cost cutting exercise that likely led to CoH/V’s closure.

      Unfortunately I think you overestimate CoH/V’s importance to NCsoft or their investors. It was a tiny part of their revenues and although one of the few bright sparks to come out of NCsoft West’s MMO attempts (which also included Auto Assault, Dungeon Runners and Tabula Rasa) it was no longer pulling in the numbers it needed to keep NCsoft interested in it. CoH/V was less important to NCsoft than Guild Wars 2 or Wildstar (in that resources were being prioritised to those studios over Paragon even before the closure).

      As for the timing of the closure: for Paragon Studios it was business as normal because they didn’t know what was happening. The decision was made to cancel CoH/V and they heard about it at roughly the same time as the player base did. From a management perspective, it’s very risky to tell employees that you’re thinking of firing them – they can cause a lot of damage. And as I said above, NCsoft fully supports a title right up to the time it doesn’t. So Paragon Studios released the powerset because that was what they planned to do, not knowing what was coming.

  8. “NCsoft has a history of completely supporting a title right up to the point it doesn’t.”
    So what exactly did NCsoft do to make CoH/V profitable? I understand you want to use unverified sources, but it seems like you’re bending over backwards to give NCsoft the benefit of the doubt and accepting their claims as true without verification.

    And what would have qualified as “profitable enough”? You said that game was a small part of the company, but isn’t a little profit and happy customers better than no profit with angry ex-customers who feel they can’t trust you now?

    • NCsoft funded the development of CoH/V when they became its publisher in 2002. It provided a range of game functions like customer support and billing but split that between CoH/V and other games, thus reducing the cost of these things for this title.

      Then it bought out Cryptic’s part of the IP and built up Paragon Studios from only about 15 people to the 80 or so it was when it closed. As owner-publisher, it would have been responsible for signing off on budgets and overall direction.

      Despite years of declining revenue, NCsoft would have committed addtional funding to support the development of Going Rogue (2009) and Freedom (2011). A box expansion and F2P conversion would have required their sign-off. Ultimately NCsoft wanted to see CoH/V grow as a title, but this unfortunately didn’t happen.

      I can’t say what would have been ‘profitable enough’, but one thing to consider is that the ‘little profit’ may have been much bigger if that investment was spent elsewhere. As a hypothetical – if it costs NCsoft US$8m to run Paragon Studios per year and they get US$2m in profit, but Guild Wars 2 needs an extra US$8m to generate an additional US$16m profit per year, they’d be better off from a financial view to go for GW2.

      I’m not happy about the way that CoH/V was shut down, but I’m trying to put across that there is at least some sort of business case that can be made for the shutdown. I’ve seen too many rationales for CoH/V’s closure that were a variation on “NCsoft is evil and / or incompetent” when the available information indicates that despite its popularity within the subscriber base there were other issues going on.

  9. Pingback: City of Heroes / Villains: An Addendum of Sorts | Vicarious Existence

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